Should we stay or should we go? That’s probably the biggest question in the UK right now, and one that is rocking the boat for British businesses. The uncertainty in the current economy caused by the Brexit question is making it increasingly difficult for UK businesses to plan effectively for the future.
There’s little doubt that a ‘leave’ vote in the upcoming EU referendum would have an economic impact, but in most sectors the experts predict the effects will be relatively small. However, a report from Oxford academics suggests certain sectors could be hit much harder.
Export-dependent Manufacturers Could Suffer Post-Brexit
Thousands of export-dependent manufacturers are already experiencing “significant financial distress” thanks to the uncertainty caused by Brexit, and research by Begbies Traynor suggests a ‘leave’ vote could push them over the edge.
The research, which analysed the financial health of UK companies in Q1 (January to March) 2016, found 21,061 manufacturing firms were struggling financially, representing a 20% rise on the same period last year. This is despite the fact that the weak pound is currently making UK exports more attractive to international buyers.
The CBI estimates that leaving the EU could give the UK economy a short-term shock, leading to a £100bn shortfall and knocking 5% off GDP. Even if the UK can agree a free trade agreement with Europe after voting to leave the EU, the organisation still believes economic growth will be down 3% by 2020.
UK Business Growth Starts to Slide
There are also signs that business growth in the UK is experiencing a sector-wide plateau. Although the picture still looks relatively bright for the economy, the number of UK businesses reporting at least one ‘key indicator of growth’ has hit a three-year low.
According to the latest research by the insolvency trade body R3, 57% of businesses reported at least one sign of business growth in March 2016, down from 69% in December 2015. Those key indicators of growth included:
- Increased profits – 35%
- Increased sales volumes – 33%
- Investing in new equipment – 25%
- Business expanding – 25%
- Market share has grown – 23%
An Inevitable Rise in Company Insolvency?
All these factors seem to be pointing to an inevitable rise in company insolvency over the coming months, particularly if voters support the move to leave the EU. However, the latest statistics from the Insolvency Service for Q1 2016, show that corporate insolvencies are maintaining their downward trend.
Although there was a small rise caused by an increase in compulsory liquidations, company voluntary arrangements (CVAs) and administrations were at their lowest level since 1998 and 2003 respectively. The estimated liquidation rate in the 12 months ending Q1 2016 was just 0.42% of active companies, the lowest level since comparative records began in 1984.
There may be uncertain times ahead, but at Parker Andrews we can provide the expert advice you need to keep your business on the right track. If you’re experiencing cash-flow issues or are worried about company debts, please call our team today for a no obligation, cost-free initial consultation.